Vivendi beats forecasts, cautious on 2010

By IBT Staff Reporter03/01/10 AT 8:40 AM

Vivendi, Europe's largest entertainment group, sounded a cautious note on its profit outlook for this year despite posting better than expected results for 2009, boosted by its video games and telecoms units.

Chief Executive Jean-Bernard Levy said he expected slight growth on an adjusted operating profit basis this year, a change from the strong growth the group achieved last year.

We are being reasonably conservative on our predictions for 2010, said Levy on a conference call. There is still a lot of uncertainty on the economy and consumer demand remains a question mark in some countries.

The owner of Universal Music Group, the world's biggest record company that competes with Sony and EMI, also said net profit for 2009 was dragged down by a 550 million-euro ($747 million) provision for possible damages in a U.S. class-action lawsuit.

Uncertainty about the case, and its eventual cost, have weighed on the shares since a January court decision.

Shares in Vivendi, which also has telecom operations in France, Morocco and Brazil, rose as much as 4 percent before retreating to trade up 1.5 percent at 18.77 euros at 1127 GMT.

Expectations were low going into results and we therefore expect some bounce in the shares today, UBS analyst Polo Tang said in a note. All divisions look broadly in line to be better.

Vivendi posted revenue up 6.9 percent last year at 27.13 billion euros while earnings, before interest, tax, and amortization increased 8.8 percent to 5.39 billion euros.

Yet the shadow of the U.S. class-action lawsuit, in which shareholders won a case alleging that Vivendi misled them about the state of the group's finances from 2000-2002 under previous CEO Jean-Marie Messier, caused a fourth-quarter net loss of 839 million euros..

To the extent that Vivendi was found guilty by a jury, whatever we think of that verdict we must be prudent from an accounting point of view so we have made the provision, Levy said on a conference call with reporters.

But the legal case will be long and complex and we have the strong hope that at the end of it all we will have nothing to pay out at all, he said.

Most analysts have already factored multi-billion euro damages for the lawsuit into financial models for Vivendi.

But the case remains a major uncertainty that analysts say is likely to continue to weigh on the stock this year, unless the company decides to settle before the appeal.

Levy said he would defend the interests of Vivendi's current shareholders, adding that it was unfair for them to bear a big class-action payout that serves only to enrich lawyers and a small number of shareholders from the contested period.